In a quarter marked by historic winter storms that paralyzed much of the United States, Gap Inc. reported mixed fiscal fourth-quarter results, weathering temporary store closures but falling short on some key expectations. The apparel giant, whose portfolio includes Old Navy, Gap, Banana Republic, and Athleta, saw its stock drop as much as 9% in extended trading on Thursday following the announcement.
Winter Weather and Tariff Headwinds Weigh on Results
The company’s performance was directly impacted by severe cold weather, snow, and ice in January, which led to approximately 800 temporary store closures at the peak of the storms. These closures primarily affected Old Navy, the company’s largest brand, and contributed to a miss on comparable sales. “Old Navy and all the brands were actually trending better heading into that weather disruption,” said Katrina O’Connell, Gap’s Chief Financial Officer. “The good news is the trends recovered immediately after those storms passed.”
Beyond weather, gross margin pressure from tariffs persisted. The company’s gross margin fell to 38.1%, slightly worse than analyst expectations. Gap did not incorporate recent changes to U.S. tariff policy into its forward guidance, with O’Connell calling it “premature to plan for a change” given the evolving situation. However, she noted that the newly enacted 15% tariff under Section 122 is slightly below the previous IEEPA rates factored into their plans, suggesting a potential modest benefit to operating income if that rate remains in place.
For the quarter ended Jan. 31, Gap reported:
- Earnings per share: 45 cents vs. 46 cents expected (LSEG consensus)
- Revenue: $4.24 billion, meeting expectations (LSEG consensus)
Net income was $171 million, or 45 cents per share, down from $206 million, or 54 cents per share, a year earlier. Sales rose 2% to $4.24 billion from $4.15 billion.
Guidance Reflects Cautious Optimism
Gap’s guidance for the current quarter and full year was largely in line with, but did not exceed, Wall Street projections. For the upcoming quarter, the company expects revenue growth of 1% to 2%, compared to the 2% growth anticipated by analysts. For the full year, it forecasts sales growth of 2% to 3%, aligning with the 2.5% consensus estimate. An adjusted full-year earnings per share outlook of $2.20 to $2.35 was provided, slightly bracketing the $2.32 expectation.
A Brand-by-Brand Breakdown: Divergent Paths
The results highlight a tale of four brands, with performance varying significantly across the portfolio.
Old Navy: A Miss Despite Broader Trends
Old Navy’s sales rose 3% to $2.3 billion, with comparable sales also up 3%. However, this fell well below the 4.3% comparable sales growth analysts had projected, according to StreetAccount estimates. The brand emphasized that its “price value equation is resonating with consumers” and it continues to attract shoppers across income levels, but the storm-driven closures clearly hampered its momentum.
Gap: A Bright Spot with Cultural Resurgence
The namesake brand was the standout performer. Sales surged 8% to $1.1 billion, with comparable sales up 7%—far exceeding the 4.6% growth expected by analysts. Under CEO Richard Dickson’s leadership, Gap has aggressively worked to regain cultural relevance, a strategy that appears to be paying off with younger, Gen Z shoppers and across multiple generations. This marks a significant turnaround for the iconic brand.
Banana Republic: Building Steady Momentum
Banana Republic posted its third consecutive quarter of positive comparable sales, which grew 4% against an expectation of 2.5%. Overall sales were up 1% to $549 million. Dickson highlighted strength in key categories like men’s traveler pants, cashmere, and outerwear, noting that the women’s business is becoming “much more consistent” with strength in denim skirts and sweaters. The brand is described as “really starting to find its momentum” heading into 2026.
Athleta: Grappling with a Strategic Reset
Athleta continued to face challenges, with revenue down 11% to $354 million and comparable sales down 10%. This reflects both a sluggish overall athletic apparel market and the brand’s own strategic missteps, including targeting the wrong customer and assortment misses. Under a new CEO, Athleta is executing a revamp focused on bringing back customer favorites and increasing innovation. The road to recovery appears longer for this brand.
The Next Phase of the Turnaround
Dickson’s turnaround plan is now just over two years old, and analysts are expecting more as the company has improved profitability, returned to growth, and accumulated a substantial $3 billion cash pile. Dickson stated the company is ready for the next phase: “building momentum.”
“Our primary focus is going to be on growing our core apparel business, and we’re going to do this through continuous improvement,” Dickson said, citing the need for “better product, better marketing and better storytelling.”
Beyond the core, Gap is exploring new growth vectors, including expansion into beauty and accessories and the development of a fashion and entertainment platform, recently bolstered by the appointment of a chief entertainment officer. These ventures are expected to begin scaling meaningfully next year.
Gap’s fourth-quarter results underscore a company at a crossroads—celebrating the resurgence of its flagship brand while contending with external shocks like winter storms and tariffs, and navigating the complex turnaround of a key division. The path forward hinges on sustaining Gap’s newfound cultural cachet, ensuring Old Navy’s value proposition remains resilient, and successfully re-engineering Athleta for growth.
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